For your information - March 2009
What the heck is “Quantitative Easing”?
It appears recent forecasts need to be adjusted considering the economic weakness in the first quarter of 2009. Canada is predicted to be one of the first countries to recover from the recession, but now expectations are that we will not experience any significant economic growth until the beginning of 2010.
The Bank of Canada is using everything in its arsenal to stimulate the economy. They have initiated stimulus packages, tax breaks, and on Tuesday March 3rd they reduced the overnight lending rate by another .5% … that's 8 reductions in 14 months, Wow! This rate cut will only reduce variable rate mortgages by .5% and NOT affect fixed mortgages.
If you are lucky enough have one of the past variable mortgages that is something like prime less .75%, then as of next month, your rate will be 1.75%, and possibly less in April. Be sure to hug and love that mortgage until the last day you have it because they are no longer available and are not coming back anytime soon. Do not be tempted to convert to a fixed term mortgage at a higher rate like 4.5%. If one considers average interest, I am confident rates cannot climb high enough and fast enough to justify aborting a 1.75% variable mortgage.
Now that the overnight rate is at an all time record low of .5%, there's obviously very little room to reduce it more, yet a 0% overnight rate is not impossible. So if there's no more room to cut interest rates, what's next? Time to pull out “Quantitative Easing” … which is simply printing more money to buy bonds that allow for even lower long term borrowing rates. The crux of our economic woes is the lack of consumer confidence both here and in the U.S. so lowering interest rates further will be more of a psychological boost than a practical one.
Cut or no cut, rates are already at historic lows, and anyone who has job security needs to buy a home now before this window of opportunity starts to close. Now is the time for many to escape the “renting trap!” Note that current mortgage rates are 3.75-4.25%, which translates into a $45 payment per month for every $10,000 borrowed, or $1,350/month for a $300,000 mortgage … now that's like a rent payment!
Don't count on your Bank; now more than ever we need to be financially literate. Understanding the current economic environment and the mortgage plans that complement it is critical. A great mortgage is far more than the best rate. Understanding short-term rates vs. long-term rates, pre-payment privileges, mortgage tax deductibility, amortization strategies, incorporating financial planning, etc. is paramount to retiring more comfortably sooner.
When you're ready to explore what financial manoeuvres will serve you best, please contact us anytime. Together, we'll capture your priorities and explore ALL the appropriate options … all for free and at no obligation.
Here's to a spring of affordable homes and cheap mortgages!
The recent federal budget is getting mixed reviews, but there's one program that's causing widespread excitement for Canadian homeowners: a new tax break for home improvements. Click here to read more.
Engaging a contractor for your renovation? Be sure to have a contract. Click here to read more.
